NEOLIBERAL POLICY AND THE GROWTH OF SLUMS

The United Nations’ Population Division predicts that there will be 9.3 billion human beings on our planet by the year 2050. This issue gives birth to a host of problems concerning sustainability, scarcity, political conflict and perhaps most importantly, slums. Not only are our numbers rapidly rising, but we are also experiencing increasing settlement concentration into cities, otherwise known as urbanization. In 2007, it was estimated that over half of the world’s population lived in urban cities, rather than in rural zones. In many developing countries, this process brought with it the development of slums. Today, one-third of the world’s urban population inhabits slums, and by 2030 that number will increase to over 2 billion people (UN-Habitat). According to the United Nations, a slum is any dwelling that lacks one of five elements: improved water access, improved sanitation access, tenure security, housing durability and sufficient living area. Most of the population growth towards 2050 will be seen in developing countries, the top five contributors being India, Pakistan, Nigeria, Democratic Republic of the Congo and Bangladesh. These countries also have some of the world’s highest levels of population currently living in slums: 55.5 percent of the population in India (158.4 million people), 73.6 percent in Pakistan (35.6 million), 79.2 percent in Nigeria (41.6 million) and 84.7 percent in Bangladesh (30.4 million) (Davis 24). This article will investigate the larger historical-economic forces that have directed this pattern of intense urbanization.

The growth of cities and urban populations coincides with globalization, especially in developing countries (Ploeg). The growth of slums was not a wholly organic development that occurred within the domestic conditions of a country. Rather, it is one of the results of globalized, neoliberal capitalism. The neoliberal incarnation of capitalism emphasized financialization at the cost of productive manufacturing and privatization at the cost of public investment and infrastructure. This new economic policy resulted in the dependence of developing countries’ economies on the global marketplace. Without over-generalizing the trajectories of many different countries, this article will give a brief overview of 1) the economic structural foundations of increasing world urbanization in the developing world and 2) the subsequent explosion of slums, as a result of which billions of people are excluded from the formal sector of the economy, society and politics. This article will also demonstrate that slums are a result of a global economic system based on neoliberal principles that induced the formation of large cities, without generating substantial economic development in “third world” countries.

Global Neoliberalism and the Rise of Cities

Why cities? Although urbanization can have a variety of causes — refugees escaping civil conflict, displaced communities as a result of natural disasters, this article will focus on global economic factors as the cause of urbanization. Capitalism is frequently cited as the ultimate harbinger of many of the world’s ills. It was, however, a particularly stringent version of capitalism (known as neoliberalism or market fundamentalism) in combination with increasing global integration that created a tendency towards urbanization along with exclusionary national development. After the Cold War, the Western capitalist/neoliberal model of economic development dominated the global system. The cornerstone of this ideology is an institutional framework of privatization, deregulation, free markets, free trade and minimal state interference and regulation (Harvey).

Beginning in the 1980s, a disproportionate emphasis was placed on financialization or securitization within the realm of global economic relations — two highly volatile processes that are vulnerable to speculation but offer substantially more profits than trade. This meant that international economies were pushed to open to short-term capital flows (by way of foreign direct investment and portfolio investment). Foreign direct investment grew three times faster in the 1980s than did regular manufacturing or productive trade, necessitating the establishment of a core of services and finance in order to draw in investors (Sassen). As finance and capital emerged as the predominant factors determining economic relationships between countries, the dominant mode of human settlement tended towards urbanization. Large core cities became the ideal sites for a globalized economy based on capital flows. A global network focused on these activities requires financial markets, banks, corporate services and transnational corporations to concentrate together in a process called “agglomeration” (Sassen). This centralization facilitated global economic relations by producing the capability for infrastructure, servicing and control in these metropolises. As developing countries attempted the move from rural-agricultural to urban-industrial economic structures, they commercialized, deregulated and privatized their economies for the global market. Transnational corporations accounted for 80 percent of international trade in the 1980s and local financial credit markets served their needs to a disproportionate extent (Sassen). Deregulation and a market-oriented economy are key phenomena in organizing massive financial flows with the city functioning as a central node of command and control of these flows.

These conditions of urban favoritism gave rise to a theory known as “urban bias” (Lipton). This theory states that although over 65 percent of people in less developed countries and 80 percent of those in extreme poverty relied on agriculture, policy and investment were allocated towards urban priorities that failed to address the needs of the lower classes. Government policies such as tariffs, subsidies and pricing tended to favor the urban manufacturing sector at the expense of the agriculture industry (Ploeg). This perpetuated poverty and underdevelopment in “third world” countries because rather than developing their comparative advantage in low-cost labor and agriculture, scarce capital was put into industrial production. In addition, cities would attract significantly more foreign investment due to high levels of human capital, large pools of labor and points of international trade (Ploeg). Lipton argues that this is an inefficient use of resources because it distorts the natural domestic market. Rural resources are more ample in developing countries and are thus more efficiently produced and profitable. As a result, this urban bias creates inequality and perpetual underdevelopment by excluding the rural masses from participation in the economy. Lipton asserts, “developed mass agriculture is normally needed before widespread successful development in other sectors. Small farming is the part of the economy in which a given amount of scarce investible resources will be supported by the most human effort.” Thus, the integration of developing countries into the world economy was not based on real growth (driven by factors such as increasing employment, production or manufacturing by which capital could be accumulated) but rather on the openness to speculative finance concentrated in urban cities. This ultimately gave high profits to a few elite, but minimal employment and little-to-no broadly generated growth.

In 1982, the world experienced a global debt crisis due to the oil shocks of 1973-74, the high interest rates of the 1980s, declining export volume and prices and an adverse credit market (Ferraro & Rosser). As a result of these conditions, the developing world turned towards the policies of the World Bank and the International Monetary Fund for assistance. These international institutions were created to oversee “third world” development and global financial stability. However, these institutions were largely aligned with the neoliberal interests of the Washington Consensus, a model based on Western capitalism. Therefore one of the primary motivations was the reduction of barriers to international capital flow (in which the West had a comparative advantage). Neoliberal policies were imposed upon developing countries as conditions for debt obligation assistance. These prescriptions were known as structural adjustment programs (SAPs) that restructured economies in accordance with neoliberal principles. Yet in the following years, poverty and inequality ballooned and 46 countries became poorer than they were in 1990, when the SAPs were implemented.

The Rise of Cities & the Formation of Slums

For developed countries, a mass explosion in population and urbanization was historically a result of the industrial revolution in which economic growth occurred alongside industrialization. On the other hand, the “third world” has experienced urbanization and population growth without economic development. This has created urban cities in the developing world that lack the capacities to sustain an ever-increasing number of people. Scarcity of employment and lack of access to basic services and housing creates an informal sector defined by improvised slum dwellings and black market commerce. As previously mentioned, slums are a result of the economic forces that pull people towards cities. Global neoliberalism structured the market such that previously subsistence agricultural land became privatized and dominated by a few large farm producers. Looking for employment after declining rural prospects, the masses made up of peasants and landless tenants moved to the cities.

In addition to new patterns of human settlement, the debt burdens of developing countries in the 1980s meant that less money was spent on social services and physical infrastructure (Low, et al.). It has been proven that income inequality was highest in countries with a neoliberal political economy. The debt crisis further aggravated the income gap. As a result of structural adjustment policies, debt-ridden developing countries were required to completely align with market fundamentalist policies, and relinquish all state-guided economic planning. Yet, a majority of revenue was used to service their debt to lending countries at the expense of the development of their own populations. As a result of structural adjustment, unemployment continued to rise, poverty increased and wealth became more concentrated (Low, et al.). Since public services and utilities were privatized, access for the marginalized urban population became increasingly limited. The provision of public infrastructure and resources was withheld and “greater inequality of access to basic urban services, locational disadvantage and social exclusion” became entrenched (Low).

In addition to the decline of public services, the failure of the employment sector created exclusion. Ploeg argues that market imperfections and inefficiencies of the city obstruct broad growth and employment potential. Agglomeration forces attract workers and drive wages up. Eventually an excess of workers migrate to the city, land prices go up and at the same time private wages go down by increasing the supply of labor. Logically, the cost of living and the cost of wages have to be in balance for the most efficient growth of cities. In reality however, a city usually becomes too large (over-urbanization) and overburdens the resources available. This creates congestion, pollution and slums without providing the formal employment capacity to sustain the new population influx (Ploeg). Thus, people will frequently turn towards the informal sector for employment, housing and services. As Ploeg states, “after the point where formal cost of living surpasses slum cost of living, the squatter settlements remain relatively affordable and population increases” (Ploeg, 481). With the formal sector out of reach for the majority of migrants entering the city, the informal settlements are only further entrenched and continuously growing.

Thus, a complex but interrelated set of economic processes have interacted in recent decades to generate the growth of slums. Globalization of neoliberal market economics created movement towards cities, and the centralization of state capital became concentrated in these urban centers. Urban bias and overurbanization created an unbalanced and ultimately stagnant economy in which the majority of the population did not have access to formal employment. The core principles of neoliberalism include deregulation, privatization and minimal public infrastructure and render basic infrastructure and services (housing, utilities) unattainable for those inhabiting slum settlements. Consequently, billions of people are excluded from formal employment and housing. Many live in unsanitary and crowded conditions, lack clean water or plumbing and have no legal rights to the land they occupy.

Works Cited

Davis, Mike. Planet of Slums. Verso. 2007.

Ferraro, Vincent; Rosser, Melissa. World Security: Challenges for a New Century. St. Martin’s Press. 1994.

Harvey, David. A Brief History of Neoliberalism. Oxford University Press. 2007.

One response to “NEOLIBERAL POLICY AND THE GROWTH OF SLUMS”

Beautifully written article that addresses a very real crisis urban society must confront and take seriously; these same “neo-liberal” policies are still being preached in some corners of the political forum, and it’s time we better scrutinize these ideas and their implications. Let’s do it for our future!